When importing goods from China, there are three major steps that are key to effective trading. They are Research and Tender, Sampling and Contract Negotiation and Order and Delivery Management.

The 1st stage for importing goods is the Research and Tender process. This includes finding and certifying applicable suppliers for your products. This step marks the most important area of the system for importing goods. In order to be effective at importing goods, you have to first build from a solid foundation. It can be simple to find manufacturers online, sites like globalsources.com and madeinchina.com can supply you a wealth of manufacturers for the product you want to import. However! The key issue to realise when importing goods directly from associates of such sites is that generally a few emails is not enough to work out the good from the bad. When importing goods some critical questions and procedures need to be taken. In order to ensure your potential manufacture is right for your business, it will require you to do some background checks.

Some areas worthy of investigating include:

- REPUTATION – Ask for testimonials of previous customers.
- EXPERIENCE IN EXPORTING – Where have they exported to previously? Are they capable of importing goods into western countries? e.g. Australia, Europe etc.
- QUALITY AND WORKERS SKILL – Can they can demonstrate the most complex and high quality merchandise they have produced?
- SERVICE ATITUDE – How fast do they reply to your enquiries? What is the quality of their responses like?
- FACTORY CAPACITY – Are they to small or huge (e.g Minimum Order Quantities)? Are they be able handle bigger orders as your business expands?
- ABILITY TO FOLLOW INSTRUCTIONS – Ensure your potential suppler can clearly understand and follow your instructions and requests.
- WILLINGNESS TO COMPLY TO QUALITY STANDARDS- Ensure that the supplier is committed to developing a long term relationship that includes making sure your quality guidelines are delivered whenever you are importing goods from them.

The first stage for importing goods is normally where the most effort is involved. Before you start investing in the sampling or manufacturing process, it is critical that you first manage the risks involved in importing goods by ensuring you have found a supplier that is trustworthy and right for your importing needs.

Tariff
A duty (or tax) levied on goods transported from one customs area to another. Tariffs raise the prices of imported goods, thus making them less competitive within the market of the importing country.

International Commerce (INCO) terms

Shipping terms set the parameters for international shipments, specify points of origin and destination, outline conditions under which title is transferred from seller to buyer, and determine which party is responsible for shipping costs. They also indicate which party assumes the cost if merchandise is lost or damaged during transit. To provide a common terminology for international shipping, the following INCO terms have been developed under the auspices of the International Chamber of Commerce.

Cost, Insurance and Freight (CIF)

The exporter pays the cost of goods, cargo and insurance plus all transportation charges to the named port of destination.

Cost and Freight (C&F)

The exporter pays the costs and freight necessary to get the goods to the named destination. The risk of loss or damage is assumed by the buyer once the goods are loaded at the port of embarkation.

Ex Works (EXW)

The price quoted applies only at the point of origin and the seller agrees to place the goods at the disposal of the buyer at the specified place on the date or within the period fixed. All other charges are for the account of the buyer.

Free on Board (FOB)

The goods are placed on board the vessel by the seller at the port of shipment specified in the sales contract. The risk of loss or damage is transferred to the buyer when the goods pass the ship’s rail.

Free on Board Airport (FOB Airport)

Based on the same principles as the ordinary FOB expression, the seller’s obligation is fulfilled by delivering the goods to the air carrier at the specified airport of departure, at which point the risk of loss or damage is transferred to the buyer.

Transportation and Delivery Terms

The following are common terms used in packing, labeling, transporting and delivering goods to international markets. They are in addition to the above INCO terms.

Bill of Lading (Ocean or Airway)

A contract prepared by the carrier or the freight forwarder with the owner of the goods. The foreign buyer needs this document to take possession of the goods.

Certificate of Origin
A document that certifies the country where the product was made (i.e. its origin). A common export document, a certificate of origin is needed when exporting to many foreign markets.

Commercial Invoice

A document prepared by the exporter or freight forwarder, and required by the foreign buyer, to prove ownership and arrange for payment to the exporter. It should provide basic information about the transaction, including description of goods, address of shipper and seller as well as delivery and payment terms. In some cases, the commercial invoice is used to assess customs duties.

Customs Declaration

A document that traditionally accompanies exported goods bearing such information as the nature of the goods, their value, the consignee and their ultimate destination. Required for statistical purposes, it accompanies all controlled goods being exported under the appropriate permit.

Customs Invoice

A document used to clear goods through customs in the importing country by providing documentary evidence of the value of goods. In some cases, the commercial invoice (see glossary entry) may be used for this purpose.

Ex Factory

Used in price quotations, an expression referring to the price of goods at the exporter’s loading dock.

Export Permit

A legal document that is necessary for the export of goods controlled by the Government of export country, specifically goods included on the Export Control List.

Freight Forwarder

A service company that handles all aspects of export shipping for a fee.

Insurance Certificate
A document prepared by the exporter or freight forwarder to provide evidence that insurance against loss or damage has been obtained for the goods.

Landed Cost

The cost of the exported product at the port or point of entry into the foreign market, but before the addition of foreign tariffs, taxes, local packaging/assembly costs and local distributors’ margins. Product modifications prior to shipment are included in the landed cost.

Packing List

A document prepared by the exporter showing the quantity and type of merchandise being shipped to the foreign customer.

Pro Forma Invoice

An invoice prepared by the exporter prior to shipping the goods, informing the buyer of the goods to be sent, their value and other key specifications.

Quotation

An offer by the exporter to sell the goods at a stated price and under certain conditions.

Financial and Insurance Terms

The following are the most commonly used terms in international trade financing.

Consignment

Delivery of merchandise to the buyer or distributor, whereby the latter agrees to sell it and only then pay the exporter. The seller retains ownership of the goods until they are sold, but also carries all of the financial burden and risk.

Document of Title

A document that provides evidence of entitlement to ownership of goods, e.g. carrier’s bill of lading.

Letter of Credit

An instrument issued by a bank on behalf of an importer that guarantees an exporter payment for goods or services, provided the terms of the credit are met.

Letter of Credit (Confirmed)

A local bank confirms the validity of a letter of credit issued by a foreign bank on behalf of the foreign importer, guaranteeing payment to the local exporter provided that all terms in the document have been met. An unconfirmed letter of credit does not guarantee payment so, if the foreign bank defaults, the local exporter will not be paid. Local exporters should accept only confirmed letters of credit as a form of payment.

Letter of Credit (Irrevocable)

A financial institution agrees to pay an exporter once all terms and conditions of the transaction are met. No terms or conditions can be modified without consent of all parties.

Open Account

An arrangement in which goods are shipped to the foreign buyer before the local exporter receives payment.

Partnership, Alliance and Market Entry Terms

The following expressions define the various types of partnership or alliance arrangements as well as methods of market entry common in international trade.
Agent

A foreign representative who tries to sell your product in the target market. The agent does not take possession of and assumes no responsibility for the goods. Agents are paid on a commission basis.

Distributor (Importer)

A foreign company that agrees to purchase a local exporter’s product(s), and then takes responsibility for storing, marketing and selling them.

Franchise

This is a more specific form of licensing. The franchise is given the right to use a set of manufacturing or service delivery processes, along with established business systems or trademarks, and to control their use by contractual agreement.

Joint Venture

An independent business formed cooperatively by two or more parent firms. This type of partnership is often used to avoid restrictions on foreign ownership and for longer-term arrangements that require joint product development, manufacturing and marketing.
In a specifically American legal context, however, a joint venture is a collaboration between two companies to carry out a particular, individual project. The venture lasts only as long as the project does and is governed by the partnership laws of the state where it was formed.

Licensing

Although not usually considered to be a form of partnership, licensing can lead to partnerships. In licensing arrangements, a firm sells the rights to use its products or services but retains some control.

Trading House (or Company)

A company specializing in the exporting and importing of goods produced or provided by other companies.

Legal Terms

The following are some of the more common legal terms encountered in international transactions.

Arbitration

The process of resolving a dispute or a grievance outside of the court system by presenting it to an impartial third party or panel for a decision that may or may not be binding.

Contract

A written or oral agreement which the law will enforce.

Copyright

Protection granted to the authors and creators of literary, artistic, dramatic and musical works, and sound recordings.

Intellectual Property

A collective term used to refer to new ideas, inventions, designs, writings, films, and so on, protected by copyright, patents and trademarks.

Patent

A right that entitles the patent holder, within the country which granted or recognizes the patent, to prevent all others for a set period of time, from using, making or selling the subject matter of the patent.

Trademark

A word, logo, shape or design, or type of lettering which reflects the goodwill or customer recognition that companies have in a particular product.

When China first opened its doors to international trade, 3 things were associated with a product that was made in China. Firstly, it was cheap. Secondly it was of poor quality, and thirdly, it was almost conceded that it would be copied at some point.

We all know that products are simply cheaper in China, and that in most cases the countries capability to produce quality items depends only on your own ability to manage your supplier. But what about intellectual property? Can you keep it in China?

The reason why China was the focus of the world for copying, didn’t stem from the suppliers themselves, rather from the rest of the world.

In most cases, copies of a product aren’t a result of suppliers actively searching for products to copy, rather they are presented with a product from an ‘outsider’ who is looking to make money from their cheaper manufacturing costs.

This doesn’t mean IP piracy does not exist, but you should treat the protection of your intellectual property as if you were in your own ‘western’ country.

To help protect your IP, here are our TOP 10 Infringement Risk Reduction Strategies:

- Agreement in Chinese law – Non Disclosure Agreement: Invest in a proven and practical Non Disclosure Agreement. To eliminate confusion ensure that it is in both English & Chinese. Click here to find out more.

- Patent Protection in your Target Market: Think about the markets you will be selling too, and apply for patent’s in those countries.

- Conduct Regular Audits: Regularly review your manufacturers operations to ensure they are not selling extra runs of your product, or dealing with your competitors.

- Flooding the Market: Offer your product to the market at a high volume and low cost. This can help to discourage copying.

- Key Components: Keep the manufacturing of key product components internal or separate from your main manufacturer.

- Own the Tooling: Purchase the tooling used for the manufacturing of your product. This means you can take it with you if the relationship with your supplier goes pear shaped.

- Include IP Clauses in Contracts: Always ensure that whenever a transaction is occurring, your IP is included in the agreements.

- Continuously Innovate: Always make sure you have something different and new in the pipeline (don’t just use the same model forever).

- Attend High Profile Sourcing Events: Trade fairs are a great opportunity for you to scout for copies e.g. Canton Fair.

- Seek Professional Advice: Experience within mainland China is key. Places like Hong Kong have slightly different laws.

Undoubtedly one of the most common questions my team and I receive about China is ‘What can I do to check the quality of my product before it arrives at my door?’.  The importance of this issue is perhaps why we hear it so much.  Because in the end, what is the point of saving 30-50% on your purchasing costs if you end up with a product you can’t sell?

Here are some of our own secret techniques and other well-known options:

Supplier Self Assessment:

The Supplier Self Assessment outlines all your standards for product quality, against which the supplier will judge him/herself.  During the negotiation phase, use this form to make your supplier clear on your expectations.  Then have your supplier complete the form and fax it to you, prior to shipping the goods, so you can approve it, or not approve it.  This method is unique to our processes, and something you may wish to invest in.

More details can be found here.

Pre-Shipment Photo:

Basic and straight forward, having your supplier send a photo of your product before shipping will allow you to see what to expect in your container.  This type of inspection can be very detailed depending on the type of photos you request.  The packaging, the key components of the product (e.g. stitching in clothing), colour etc. can all be documented in a photo.  A good measure of what to expect, a photo does however limit the amount and depth of product inspection a importer can do, and in some cases it can be limited by what the supplier wants you to see.

Pre-Shipment Sample:

You may choose to have a sample of your order air freighted to you before the main shipment arrives.  This form of inspection will enable you to gauge the quality of the shipment you will soon receive.  Having the product in your hand enables the appropriate testing to be performed and for your own peace of mind.  However, if something has gone wrong with the main shipment you won’t know for sure until it is at your door.  This method can also sometimes be impossible due to the nature of the product.

Factory Audit:

This involves having a qualified inspector verify the factory’s existence, check core production competencies and capacity claims.  Also check the bona-fides of the person you are dealing with and see first hand the quality procedures employed.

During Production Inspection (DPI):

Occurs when the merchandise is completed, packed and ready for shipment, or at least 80% of products packed.

Performed to an agreed Acceptable Quality Level (AQL), established between you and the supplier.   Samples are taken based on the internationally recognized statistical random sampling technique, commonly known as ANSI/ASQC Z1.4, BS 6001-1, and ISO 2859-1.  Inspectors will verify quantity, style, colour, workmanship, size, packaging, and shipping mark to ensure the merchandise meets the contract specifications, or conforms to the approved sample.

If you are interested in finding out more about the inspection options and services available to you, please feel free to contact us.

In this email, you’ll learn about inspecting your goods prior to their shipment to you.

Once your goods have been manufactured in China, should you outlay more money to have your product inspected prior to loading on the container?

If you’re not using an independent sourcing company then yes, you probably should have a third party inspect the goods.

If you’re using a trusted sourcing company, the answer depends on a few variables, such as:

•    Order value
•    How safety critical your item is
•    Your confidence/history/relationship with the supplier
•    Your risk tolerance

For example, it mightn’t be cost effective to inspect a $10,000 order of erasers from a company who has been making and exporting erasers to the West for 10 years. (Low value, low safety criticalness, high confidence in supplier)

However, a $50,000 order of erasers may be worthwhile inspecting.

At ChinaDirect, whether we’re doing an on-site inspection or not, we always put the responsibility of checking the goods onto the supplier.

We’ve devised a highly effective form that shows the supplier we’re not only serious about quality, but we’re going to hold him accountable for it.

It’s called a Supplier Self Assessment form, and we introduce it to the supplier when we’re negotiating the Purchase Order, so the supplier clearly knows clearly our expectations, and how he will be assessed.

The supplier simply fills out the Supplier Self Assessment form and sends it to you prior to your inspection of the goods, or if no inspection is being undertaken, before shipping your goods.

If everything looks ok on the form, you can approve delivery.  If there are any areas of concern, you have a conversation with the supplier to resolve it, BEFORE SHIPMENT.

Of course, the only instance where you would not have a third party inspect the goods is when the order value is low, your product is not safety critical, you have high confidence/history/relationship with the supplier, and/or you have high risk tolerance.

See here for further details on the Supplier Self Assessment.